Recently, several Federal Trade Commission cases concerning payment businesses have been in review by the courts. Separate claims against Landmark Clearing and Automated Electronic Checking Inc. allege the companies had personal responsibility for the merchants within their portfolios who accepted remotely created checks and payment orders not authorized by consumers.
Payments industry legal expert Barrie VanBrackle, of Manatt, Phelps & Phillips LLP, said the FTC made these allegations because there was a belief that "the merchants used these deceptive methods with the assistance and knowing cooperation of their payment processors, or, conversely, the payment processors suggested these payment mechanisms to merchants."
On July 30, 2013, the FTC disclosed news of a filing against Merchant Services Direct LLC. The agency, with assistance from the Washington State Attorney General's Office and the Better Business Bureau of Eastern Washington, North Idaho, and Montana, is taking legal steps to review and isolate fault on numerous merchant complaints alleging MSD has been misrepresenting itself.
In a press release, the FTC stated it "files a complaint when it has 'reason to believe' that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest." The allegations against MSD range from the company's lack of disclosure regarding merchant fees, to publicizing unfounded guarantees, to a misrepresentation of the contractual process.
The claims against Landmark and AEC were settled out of court; however they led to an FTC initiative to change language in the Federal Telemarketing Sales Rule, which would prohibit sellers and telemarketers at large from accepting unauthorized forms of payment. The decision on the rule change will be made following the formal comment period that ended Aug. 8.
The MSD case was filed in the U.S. District Court for the Eastern District of Washington. In addition to filing the lawsuit, the FTC sought a court order requiring the company to immediately halt unlawful practices, as well as an order to freeze the defendants' assets and appoint a receiver over the corporate defendants.
These recent actions have caused speculation within the industry, with experts at July's Midwest Acquirers annual meeting openly cautioning processors and acquirers to be even more diligent in auditing the intent and actions of their boarded merchants, as well as in-house practices. VanBrackle recounted these comments, saying sentiments overall seemed to indicate a situation that is "emblematic for the entire industry at large."
VanBrackle agreed the ISO underwriting process should be strengthened to include compliance measures that review a new merchant's business plan; she also believes risk-aversion audits can be put into place by processors and acquirers alike to periodically monitor activities of a representative ISO or contracted merchant.
When asked what could be done to counter negative repercussions the FTC rulings might have on the industry's image, VanBrackle said, "I'd love to see the trade associations step in on behalf of the industry to coordinate with the FTC prior to a suspected party being charged."
She feels this type of partnership could mitigate future allegations before they become public and create a unified voice for the industry that would boost its credibility among the public.
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